Booms, Busts and Other B-Words

Contributed to The Financial Post
Janet Annesley
Vice President of Communications
Canadian Association of Petroleum Producers
November 13, 2013

A new economic report from anti-oil sands groups aims to prove that despite the forecast hundreds of billions of dollars in investment, hundreds of thousands of jobs, billions in materials and service contracts, and royalties and taxes, continued growth of Canada's oil sands industry is in fact bad for Canada's economy.

Are you surprised by these groups' predictable economic conclusions that fit their objective of constraining Canada's industrial growth? We're not.

"As a country, we need to recognize there are diminishing marginal benefits from oil sands development, and that too much development may make us worse off."
- Pembina Institute / Equiterre: Booms, Busts and Bitumen (2013)

Recall that in September 2012 former Bank of Canada Governor Mark Carney made the succinct statement that Canada's oil is "unambiguously good" for the country as a whole ” not just the West - words he delivered in a speech that called for more pipelines and dismissed fears about so-called Dutch disease.

"The strength of Canada's resource sector is a reflection of success, not a harbinger of failure.While the tidiness of the argument is appealing and making commodities the scapegoat is tempting, the diagnosis is overly simplistic and, in the end, wrong."
- Mark Carney, former Bank of Canada Governor (2012)

I was not there to hear Mr. Carney, but according to Maclean's magazine, "Carney said that rather than blame high-priced oil and other commodity exports for the decline in manufacturing, central Canada should get in more on the bounty by building pipelines and refineries to where the markets are in Ontario and Quebec."

Today, just more than one year after Mr. Carney spoke, that's exactly what Canada is doing. First, there's the proposed Enbridge Line 9 reversal and the TransCanada Energy East project, both of which aim to bring more Canadian crude to Canadian refineries and consumers, creating direct investment and jobs in Ontario, Quebec, and New Brunswick.

In fact, this week the Montreal Board of Trade together with dozens of Quebec business leaders are taking the time to visit Calgary with a view to expanding the existing $14-billion annual Quebec-Alberta trade relationship. Yesterday the Ontario government announced it is setting up a new trade office here. Both these things demonstrate how a market economy works and are what smart business people do when they see plentiful commercial opportunities in a valued and necessary global commodity of which Canada has an abundance.

But does this mean the oil sands is co-opting Quebec's and Ontario's business communities? (Yes, we got a version of this question once.) Or that Canada is or will become a "petro-state?" (We get this question once a month.) While you ponder the first question, the answer to the second is likely not, at least according to those in the know.

As the University of Alberta economics professor Andrew Leach points out in his recent Maclean's posting, if CAPP is trying to turn Canada into a petro-state, we're failing, perhaps miserably, given that since 1997 the energy sector's share of Canada's GDP has declined from over 12 per cent to less than 10 per cent, with oil and gas as a sub-set about six or seven per cent of GDP. So while we in the industry would like to see more profitable growth, those worried Canada will become Norway (or Venezuela or Nigeria) anytime soon can likely move on to worrying about other things.

"It is really no surprise that Canada does not suffer from Dutch Disease " turns out, neither did the Dutch."
- Philip Cross, Macdonald-Laurier Institute (Financial Post Op-Ed)

"When there's an increase in demand in one sector, it's good news for all of Canada."
Stephen Gordon, Universite Laval (CBC interview)

A recent poll CAPP did with IPSOS indicates 75 per cent of Canadians believe Canadian refineries should prioritize local oil before importing from other countries, and 70 per cent think it's important for Canada to access new export markets for oil and gas. A similar number think the oil sands is important for Canada's economy.

So, given the popularity of sharing the energy and economic value of Canada's oil resources, why is it suddenly strategic for anti-oil activists to spark fears about oil and gas sector health?

News from the International Energy Agency this week that the U.S. is poised become the world's largest oil producer, and that North America is on track to achieve self-sufficiency, was not greeted by U.S. news media as grim nor as a threat to banking, manufacturing or retail sectors.

The construction unions think energy development might put thousands of people to work. One economist predicted U.S. domestic oil and natural gas production will have a positive effect on its debt-to-GDP ratio. Sounds like something most Americans (and Canadians) should get behind.

So, one has to question the motives of those who consistently attempt to undermine an industry that is a driver - not the only driver but a decently sized driver - of the Canadian economy, who usually don't have an economically viable alternative, who appear to fail to understand the basics of investment decision-making, and who seem rooted in criticism rather than solutions.

We all want responsible development of our natural resources and improved environmental performance. That is not in question. The issue is how we best achieve a balance of economic growth, environmental performance and energy security and reliability.

As business people, we can create value for the foreseeable future by leveraging and building on our strengths as a responsible resource developer and exporter. This will provide prosperity for Canadians and the financial capacity to continue to strengthen and diversify our economy.

We all benefit from a strong economy so let's focus on finding the solutions that allow us to do just that.